Red Hat stock continues plunge after Oracle Linux support news

Linux leader Red Hat’s stock price recovered slightly Friday, but its market value has still dropped 30% since Oracle announced on Wednesday that it will offer lower-cost support of its applications running on Red Hat.

Oracle CEO Larry Ellison said at Oracle’s OpenWorld conference that his company would start offering Red Hat Linux support at a fraction of the cost the Linux company charges for its own product. This caused Red Hat stock to drop by $4.68 on Thursday, closing at $14.83 — the biggest one-day price drop since the company went public in 1999. As of 2 p.m. on Friday, Red Hat's stock had recovered somewhat to $15.96.

Oracle plans to start offering its own version of Red Hat, along with services, such as software patches and support, for customers who run Oracle database and other applications on Red Hat servers. Oracle’s so-called Unbreakable Linux 2.0 will cost $99 per year for support services and updates. Red Hat charges from $399 to $999 per year to support Red Hat Linux servers of varying sizes. Most of Red Hat’s revenue is derived from its services and support business, while the software itself is relatively inexpensive compared to competitive server operating systems.

Oracle says that Red Hat’s efforts will cause incompatibility issues among machines running Red Hat Linux and Oracle’s version of the software. The Linux company responded to the news with a Question-and-Answer Web site, stating its position on Oracle’s Linux push.

Oracle’s Linux plans have affected other Linux companies, such as Novell, whose stock fell 2.6% to $5.97 as of 2 p.m. Friday.